Expense management for business: Everything you need to know

What's the cost of poor business expense management?

When you say expense management, you might think of lost receipts and forgotten deductions. However, the actual cost of poor expense management runs far deeper than a few administrative annoyances. Here’s why:

Every missed expense is money lost due to unnecessary tax.

The Australian Taxation Office (ATO) allows businesses to claim deductions on legitimate business expenses. However, you must have proof to substantiate those deductions. 

If you can't document them with a proper expense report

It's like the expense never happened: Receipts and detailed records are your proof! 

The ATO doesn't operate on trust – you must demonstrate you incurred a valid expense. Thriday, an all-in-one financial management platform, has built-in receipt capture and expense management features to ensure every deductible cent is accounted for, maximising your potential tax savings. 

1. Potential for audits: Missing receipts for significant expenses raise red flags with the ATO. Audits are costly and time-consuming, making prevention way smarter. They are unnecessary taxes because you can't claim those deductions.
2. Taxable income stays high. Without the "slices" those deductions would have provided, your taxable income figure doesn't shrink as much as it could. You pay more than you should. The ATO calculates your tax based on that higher taxable income, so you end up paying the maximum rate on money you could have kept.

It's like paying extra for groceries and then not being able to get a refund, even though you had the receipt! 

Every lost receipt is a compliance risk if you claim the expense but don't log the audit trail.

The ATO takes record-keeping very seriously. During an audit, you could face penalties if you claim an expense but can't provide the receipt or sufficient proof of the purchase. Even worse, it could trigger a more in-depth audit of your finances.

Generally, the ATO expects you to retain records of business income and expenses for five years from when you lodge your tax return. This allows them time to conduct an audit if necessary.

In certain cases, records must be kept longer. Examples include:

• Capital Gains Tax (CGT) assets: Records are required to be kept until at least 5 years after the CGT event (ex: asset disposal) happens.
• Depreciation Claims: Records must be kept for 5 years after you've fully claimed depreciation on the asset.

When in doubt, ask. If you're unsure how long to retain a specific type of record, consult your accountant or check the ATO website for clarification. You can check what you can claim without receipts here.

A shoebox full of receipts is an admin nightmare and a costly data entry exercise for you or your bookkeeper/accountant - no one wants to do data entry.

Studies suggest that a single expense report can take up to 20 minutes to process manually. Multiply that by the volume of expenses in your business -- the time lost is staggering.

Manually sorting receipts, inputting data into spreadsheets, and hunting down missing details eat up valuable time that could be better spent on running your business. If you outsource bookkeeping, all that manual work translates into higher fees from your accountant.

Small amounts add up to big amounts - neglecting tracking of small purchases can be very costly.

Dismissing those daily coffees, small stationery purchases, or subscription renewals is easy. However, those seemingly minor expenses accumulate fast. You need to track where your money is going and avoid opportunities to cut unnecessary costs.

In other words, blind spending = budget blowouts. 

Blind spending can blindside you. Without visibility, you might miss out on early payment discounts, bulk purchase savings, better deals from other vendors, or timely re-negotiations of contracts. All of this adds up to higher costs in the long run. Every dollar you overspend lessens your profit. This can make your business less competitive, less sustainable, and less attractive for expansion.

No real-time spending insights

Traditional expense management traps you in the past. Without real-time spending insights, you're making decisions based on weeks or even months-old data. This creates a dangerous blind spot in your business. 

• Cash flow surprises. Delayed expense visibility can obscure your true cash flow position. You might think you have enough to comfortably pay that supplier invoice, only to discover later that unexpected expenses have eaten into your available funds. This can lead to late fees or strain supplier relationships.
• GST guesswork. ATO requires timely and accurate GST reporting. Outdated expense data makes it harder to calculate your correct GST liabilities, potentially leading to underpayment (and penalties) or overpayment (tying up your cash flow).
• Slow reaction times. Businesses need to be agile. Outdated financial information means you're slow to spot spending trends that need addressing. A competitor might swoop in with a better deal on a subscription service you use simply because you weren't aware your costs were creeping up.

Real-time insights allow you to protect your cash flow, optimise GST reporting, and seize opportunities that your competitors might miss.

Not understanding the distinction between positive cash flow and profitability can mislead

Having money in the bank can sometimes mean your business is profitable. If you need to track your expenses accurately, you could be making decisions based on a false sense of security, potentially leading to unpleasant surprises down the line.

Poor expense management leads to operational inefficiencies

Poor expense management clogs up the gears of your entire business. Here's how:

Employee frustration = Lower productivity

Slow reimbursements are a major morale killer. When employees consistently front their own money for business expenses, trust is eroded. Frustrated employees are less engaged and may even hesitate to incur future business-related costs.

The productivity drain

Think about all the time wasted in a typical manual expense process:

• Employees scrambling to find receipts and fill out paperwork
• Managers playing email tag during the approval process
• Finance teams manually enter data and reconcile reports

This time translates to lost productivity across your entire team.

Decision-making paralysis

Without real-time expense data, you can't make informed decisions quickly. Imagine a project starts exceeding its budget, but you discover it is way too late to adjust course. This can lead to cost overruns or missed opportunities to pivot a failing project.

Poor expense management creates bottlenecks. Delays in reimbursements frustrate employees, time wasted on chasing down paperwork saps productivity, and the lack of real-time data hinders smart decision-making.

What do small businesses need to consider when it comes to expense management?

As a small business owner, every dollar counts. Unmanaged expenses are like leaks in your profit bucket – money just disappearing!  Let's check the things you need to consider to take the full control:

Operating expenses

Costs like rent, utilities, and insurance are the lifeblood of your business but also some of your biggest monthly outflows. ‘It pays to be proactive:

• Negotiate like a pro: Be bold and renegotiate contracts with suppliers annually. Even a small percentage shaved off can add up over time.
• Bundle up: See if you can bundle services like internet and phone with the same provider for a potential discount.
• Go green: Investigate if energy-efficient upgrades to your premises qualify for tax breaks or long-term savings on utility bills.

Policy compliance

A clear expense policy isn't about being strict; it's about protecting your business and making everyone's lives easier. A good policy should:

• Set limits: Have predefined spending limits per employee based on their job role. This reduces back-and-forth approval requests.
• Clarity is key: Don't just say "travel expenses" – detail what is acceptable (economy flights vs. business class, per diem meal allowances, etc.).
• Approval process: Clarify who needs to approve expenses above a certain amount and how the notification process should work.

Expense management software

The right expense management software will become your new best friend. Look for solutions that:

• Snap and forget: Receipt scanning features turn mountains of paper into instant digital data.
• Give you real-time insights: Reporting functions help visualise where the money goes, making it easier to spot potential savings.
• ATO-approved: Check if the software is ATO-compliant for electronic record-keeping to streamline audits.

Also, having a defined process is like setting your expense system on autopilot. How to get it done?

• Keep it simple. The fewer steps involved, the more likely people will actually stick to the system.
• Accountability matters. Clear roles (who submits, who approves) prevent confusion and potential delays.
• Reimburse promptly. Set regular reimbursement dates (weekly/biweekly) to keep employee morale high.

Commonly overlooked expenses you need to watch for

Budgeting is a cornerstone of any business. But even the most meticulous plans can be derailed by sneaky, unforeseen expenses. Here, we dig into some of the most commonly overlooked costs that can throw your budget off track and tips to manage them effectively.

Training expenses

Investing in your staff's skills and knowledge is a win-win. It improves employee morale and productivity, and upskilling can lead to increased revenue and innovation. 

The good news? 

Training expenses may be tax-deductible. Stay up-to-date with the Australian Taxation Office's (ATO) guidelines to see what qualifications and courses are eligible for deductions. Remember, keeping records of training costs and employee participation is crucial for claiming these deductions during tax time. Check out some tips and hacks on how to keep records, bank statements and invoices. 

Equipment and furniture

Desks, chairs, computers, and other essential equipment are more than just office supplies; they're business assets. The benefit? You can potentially claim depreciation on these assets, reducing your taxable income over their usable lifespan.

To optimise this benefit,  maintain accurate records of purchase dates, costs, and estimated lifespans for all equipment and furniture.

Office supplies

They may seem insignificant, but those frequent trips to the office supply store can quickly drain your budget. Here's how to curb the  "death by a thousand paper cuts" effect of office supplies:

• Bulk Orders. Consider bulk purchasing commonly used items like printer paper, pens, and toner cartridges to benefit from economies of scale.
• Dedicated Supplier. Negotiate with a single supplier for better rates on frequently purchased items.

Home office setups

With the rise of remote work,  home office setups have become a new cost consideration. Deductions may be available for employees (internet, electricity) and businesses (contributing to employee home office furniture). Check the ATO website for both parties' latest guidelines on claimable home office expenses.

Fuel costs and mileage allowance

Fuel costs can be a significant ongoing expense for businesses that rely on vehicles. Stay informed about the  ATO's current mileage rate for work vehicle use. 

This rate helps determine the claimable deduction for work-related travel. Factoring in current fuel prices when creating your budget will ensure you have a realistic picture of your transportation costs.

Employee perks

Even small gestures like providing free coffee or team lunches contribute to a positive work environment and boost employee morale. While these perks may not be fully tax-deductible,  they are still a factor to consider in your overall spending plan.

How does expense management software like Thriday redefine how you manage business expenses?

Effectively budgeting is an ongoing process, but it doesn't have to be a time-consuming hassle. Thriday, an all-in-one Australian business management software, can streamline your expense tracking and empower you to take control of your finances.

Here's how Thriday can revolutionise your expense management:

Effortless receipt capture

Ditch the shoeboxes! Thriday's mobile app lets you snap a picture of any receipt and instantly convert it into a digital record: no more misplaced receipts or wasted time on manual data entry.

Actionable insights

Gain valuable insights into your spending habits with real-time reports and clear visualisations. Identify areas for cost savings, optimise budgets, and make data-driven financial decisions.

As a matter of fact, Thiday’s reporting highlights all your recurring software subscriptions. This allows you to negotiate come renewal time, cancel forgotten old trials, or even spot better deals from competitors - all adding up to cost-savings.

Effortless tax filing

Tax season doesn't have to be a headache. Thriday categorises expenses automatically and helps you generate ATO-compliant reports for effortless tax filing.

Thriday automatically categorises expenses based on Australian tax guidelines. You won't be left wondering if those office snacks are a meal expense or an office supply, saving you time and doubt. 

Improved compliance

Stay on top of ATO regulations with Thriday's built-in audit trail. Access all your expense records electronically, ensuring you're always prepared for any inquiries. This means no misplaced receipts or scrambled paperwork if the ATO asks questions. You can access and export detailed transaction histories with a few clicks.

Also, Thriday's features are specifically designed to help you stay compliant with ATO requirements. This includes:

• Automatic categorisation of expenses into ATO-relevant types
• Clear tracking of deductible and non-deductible items
• Customisable reporting options to easily pull the exact data the ATO might request

Thriday's reporting lets you spot potential compliance issues before they become problems. For example, if an employee's spending on a particular category is unusually high, you can investigate and address the situation in advance, potentially avoiding a trigger for a full-blown audit.

Proactive budgeting

Thriday doesn't just track what you've already spent. It helps you plan with features like budget forecasting. Set spending limits, get notified when approaching them, and adjust your budget in real time to avoid overspending.

Thriday isn't just about organising expenses – it's about making smarter, financially savvy decisions for your business, thanks to the insights it provides. Here's a great example of what makes Thriday different: Thriday is the best alternative to receipt bank. 

Our key takeaway

Expense management software such as Thriday gives you the tools to be proactive rather than reactive with your finances. You'll see potential issues earlier, optimise your spending in real-time, and confidently make decisions that will positively impact your bottom line.

Simply put, it's high time that we know how to anticipate budget shortfalls before they become a crisis and identify areas ripe for cost savings before they drain your resources.

Always check the ATO if your unsure about what you can and can't claim: https://www.ato.gov.au/

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